Which of the following is the best definition of unlevered cost of capital (RU)?
A) The costs that are directly associated with bankruptcy, such as legal and administrative expenses.
B) The cost of capital of a firm that has no debt.
C) Theory that a firm borrows up to the point where the tax benefit from an extra dollar in debt is exactly equal to the cost that comes from the increased probability of financial distress.
D) The equity risk that comes from the nature of the firm's operating activities.
E) The tax saving attained by a firm from interest expense.

Question

Quizplus · Accepted Answer

The unlevered cost of capital refers to the cost of capital for a company if it had no debt, essentially representing the cost of equity and any other non-debt financing methods.

Which of the Following Is the Best Definition of Unlevered